China is fiscally recapitalizing its big state banks. Basically, the MoF issues 300bn in special bonds to take part in the 350bn equity issuance by the banks/financial institutions. This is the third time in history China has recapitalized its banks: the first was in 2003, when the banking system was technically insolvent, with bad loans running at 40% at the time; the second was in 2008 during the subprime crisis. But that was to shore up AgBank for listing in HK. The recapitalization rate is running at 0.9% of GDP, substantially higher than the second time at 0.4% of GDP. The improvement in big banks' capital base was announced in March during the NPC and has made banks one of the best-performing sectors YTD, up 20%+; Bank of China surged 1/3 YTD, vs the tech-heavy ChiNext's flatish return YTD. Given the news has already been long anticipated, it's likely priced in. Essentially, this is a trade-off between improved lending ability from a better capital base and diluted EPS. Further, even if lending ability is improving, loan demand is very weak, and new loan growth is slipping into negative territory for the first time in history. More work is needed, not incremental tinkering. $FXI $KWEB $CQQQ $BABA